The individual mandate to buy health insurance is clearly the most contentious aspect of health reform. More than two-dozen states have joined federal lawsuits seeking to have health reform repealed on the grounds that the mandate is unconstitutional. Most recently, just hours after being sworn in as Wisconsin’s new Republican governor, Scott Walker authorized the state's attorney general to join a federal lawsuit in Florida challenging the individual mandate.
Meanwhile, supporters of the Affordable Care Act argue that health reform cannot succeed without the mandate. Their rationale: The legislation prohibits health insurers from discriminating against applicants on the basis of health, either by charging higher premiums for sick people or by refusing to insure those with preexisting conditions. Without the mandate, many young, healthy Americans will opt to go without coverage, the insurance exchanges will be disproportionately utilized by older people, the chronically ill and other heavy users of care. As has happened in states that offer insurance through high risk pools, premiums will be driven higher, and even with government subsidies, all but the well-to-do will be priced out.
This battle has so far been based on conjecture and theoretical projections; because there has never been a federal health insurance mandate it’s difficult to find hard data to support either argument.
This week, however, in a report published in the New England Journal of Medicine, researchers Amitabh Chandra (Harvard), Jonathan Gruber (MIT), and Robin McKnight (Wellsley), use data from Massachusetts’ state-based Commonwealth Care program to provide the first solid evidence of just how important the individual mandate will be for preventing “adverse selection” (when a larger fraction of relatively unhealthy people than healthy people purchase health insurance) in the exchanges.
As part of its health reform plan, Massachusetts began offering free coverage to many of its poorest citizens starting in 2006. The individual mandate was gradually phased in between July 2007 and December 2007 when (relatively low) penalties for not having coverage were finally instated. The state provided very generous subsidies for working-class families and individuals to buy coverage through the Connector (the state exchange). Even with the subsidies, write the NEJM researchers;
“The enrollees who signed up for Commonwealth Care before the mandate went into effect were nearly 4 years older, were almost 50% more likely to be chronically ill, and had about 45% higher health care costs than those who signed up once the program was fully effective.”
They continue: “clearly the mandate brought many more healthy people than nonhealthy ones into the risk pool…and had a causal role in improving risk selection.”
The impact of the individual mandate in reducing adverse selection will likely be greater under the Affordable Care Act than under Commonwealth Care, write the authors. That’s because Massachusetts offers higher subsidies to adults with incomes up to 300% of the poverty level when compared to the ACA: “The larger subsidies in Massachusetts would be expected to have a greater effect in inducing healthy people to obtain insurance than the ACA’s smaller subsidies — which suggests that mandating coverage might well play an even larger role in encouraging the healthy to participate in health insurance markets nationally than it has in Massachusetts.”
Click here to read the full NEJM report.
this seems to make sense, but data on the individual market gives a different perspective. most of those who elected to buy such coverage see themselves as good or excellent health– the percentage is only marginally lower than among the employed with coverage. this seems to suggest that people who can afford coverage will buy it if they find it available at an affordable rate. that suggests to me that the impact of healthy folks who opt out will be marginal.
It is an issue of constitutional law/freedom and how governments should function for society. It is not an issue of whether this law will only work if the mandate is allowed, because if the law is unconstitutional, that is a mute question!
As has been said many times, if the government wants to create a universal social entitlement, do it AUTOMATICALLY for all as a benefit of being in this country and fund it by a fair tax mechanism. Do not go down the road of picking what private enterprise the government FORCES citizens to enrich or go to jail/be fined!
Jim — Obviously the performance by people who voluntarily buy individual insurance is a different question than the performance of people who have chosen, up to now, to not buy. The addition of millions of uninsured to the system requires that both low risk and high risk people be included to be sound actuarially. The low risk people in the uninsured pool are those who have chosen not to be insured, not those inclined to be insured. Their motivations may be partly related to lack of money, but most surveys show that often they have made a calculation that the value of insurance is less than the cost, given their health status, age, and perceived risk.
NG — I agree with your point, but the issue is “moot” not “mute.” Just a pet peeve about language, along with “John Henry” instead of “John Hancock” when people talk about signitures.
“Moot” is a legal term meaning “not actual; theoretical; hypothetical; consequently not relevant.” “Mute” means unable or unwilling to speak.
While I support the individual mandate for the reasons outlined in the post, I’m concerned that many of those who qualify for subsidies will try to hide or understate their income in order to maximize their subsidy. Without the mandate, I think the pre-existing condition portion of the law would have to be modified in one of the following ways:
1. Eliminate it and go back to traditional underwriting, coupled with high risk pools which states could choose to subsidize more heavily than they do now.
2. Allow people to buy health insurance despite pre-existing conditions when the law as written first takes effect. If they fail to do so, they will be subject to traditional underwriting later.
3. Alternatively, insurers could be allowed to deny coverage for pre-existing conditions for a significant specified period of time like two or three years.
4. Or, customers would be liable for premiums from the date that they could have bought insurance but didn’t up to a maximum of three years.
5. Only allow people to sign up during an annual open enrollment period. I don’t think such a provision would be sufficient, however, to counter the likelihood of significant adverse selection in the absence of a mandate to buy insurance.
Pat Says:
NG — I agree with your point, but the issue is “moot” not “mute.” Just a pet peeve about language, along with “John Henry” instead of “John Hancock” when people talk about signitures.
Joe Says:
Dear Pat, Can you see how absolutely hilarious that was? Thanks for the fun.
Pat S,
I am unsure just what your playing grammatical police on this blog has to do with the subject discussion, as my meaning was not distorted whatsoever by the changing of moot to mute. If you want this blog to become a discussion of spelling errors, minor-meaning word usage, and grammatical misuse, I will then leave.
Remember this distraction technique when you write your next post with god-forbid a spelling error or grammar error or maybe even a word misuse!!!
Ha ha – talk about being hoisted with your own petard (Pat).
Observing this as someone who covers the European health market to some extent, the US reform is clearly very bad on two fronts – forcing people to buy from for-profit insurance companies and the act’s sheer complexity. Very complex things rarely work well in social policy.
I will admit to making many spelling errors and typos — including the spelling error on “signature” in the post itself. As I said, “mute” and “moot” is just a pet peeve. Sorry for the distraction.
Nice job Pat. Increased civility may start with the ability to laugh at one’s self. Often a difficult task.
The opposite of “mandate” is “option.”
As in PUBLIC Option. Hmmm?
I’ll take the trade if it comes to that.
Even with the so-called “medical loss ratio” limit, the very idea is to permit a twenty percent override for advertising, administrative costs, bonuses for sales and executive types…and don’t forget the shareholders. Gimme a break. A public option full of holes would be less costly. Sheesh.
That said, I don’t expect the insurance industry will let the mandate go away. It’ gonna stick. They will do whatever it takes up to and including paying elected representatives to legislate past the Judicial branch, or lean on the pet social/political predilections of Supreme Court justices (and/or their wives).
Am I getting cynical as time passes? You betcha.
Minimum medical loss ratio rules accomplish very little and could well be counterproductive. As Joe Paduda recently pointed out on his blog, if one insurer has an 81% medical loss ratio and another has a 78% MLR, we can’t tell from that information alone which one offers a given customer a lower premium for the same set of benefits. It could well be that the company with the 78% MLR is doing a better job of controlling healthcare costs, including fraud mitigation. It’s also possible that the providers in its network practice more cost effectively on balance. At the margin, minimum MLR rules discourage innovation among insurers because they will have to pass on all or most of any savings to policyholders. Yet, innovation, especially in the area of analytics requires a significant upfront investment. Nobody will be willing to make such investments unless there is a reasonable prospect of a decent return if successful. This is one aspect of the health reform bill that I think should be repealed. The burdensome 1099 reporting requirement is another, which, by the way, even many Democrats now support.
Barry:
How?
“minimum MLR rules discourage innovation among insurers because they will have to pass on all or most of any savings to policyholders”
The savings only have to be passed on if, if 80% of the premium is not spent on the patients. No one yet has decided how the 80% is calculated. It may be an average amongst all insurees and not based upon the cheapest. In which case, if the company insures higher cost patients; the average could be higher. The calculation of the MLR still has to be worked out.
As far as innovation? Now you are sounding like Larry Summers when he was in front of Congress discrediting Brooksley Born:
“casting a shadow of regulatory uncertainty over an otherwise thriving market.”
The insurance companies and the medical industry had years in which to decide how to work out a solution. They didn’t and we have paid mega-dollars for their innovation and procedures producing less than expected results utilizing standard meds, procedures, etc.
If insurance companies can not do it, I guess there is always the one payer-public option.
Run75441 –
The MLR rules have been set. The National Association of Insurance Commissioners (NAIC) worked on this issue for months before finalizing a draft on behalf of CMS. The proposed draft was largely accepted by CMS and the final regulation, as I understand it, is over 300 pages long. The main non-medical expenses that do not have to be counted are taxes, including premium taxes and income taxes (on the for profits) but not taxes on investment income. Each company stands on its own.
The difficulty in controlling medical costs has to do with the fact that the large majority of those costs are driven by doctors’ decisions to order tests, prescribe drugs, admit patients to the hospital, consult with patients, perform procedures themselves, etc. Defensive medicine plays a role as do patient expectations. Under the fee for service payment model, if the service, test or procedure is covered, insurers, including Medicare and Medicaid have to pay for it. This is a good part of the reason why there is so much interest in alternative payment models. If such payment models were successful in driving down utilization of healthcare resources and the providers shared in the savings, insurers would pass on some, but not all, of their share of the savings in lower premiums. If they have to pass on their entire share, there is less incentive for them to enter into experiments with new payment approaches.
Separately, neither Medicare nor Medicaid, both of which are single payer systems, are not able to control their expenses either. This is partly because they make no attempt to manage care and partly because both programs are riddled with fraud.
John Ballard, and Everyone– on the 80/20 rule:
I realize that letting insurers tkeep 20% of premiums to cover their costs may sound excessive.
But, first, the 80% ruule applies only to cases where the insurer is covering a small group; the administrative costs of small group coverage are higher because the insurer enjoys no economies of scale
.
When covering large groups, the reform law says that insurers can keep only 15% of premiums.
If you look at the cost of enrolling people, dis-enrolling them when they decide to change insurers, staffing phone lines when they have questions, sorting through claims, contacting customers or doctors when more information is needed, paying claims, fighting fraud, paying corporate taxes, advertising and marketing, creating programs designed to keep costs down (chronic disease management, etc.) the overhead associated with maintaining offices (cost of real estate, utilities, etc) and generating some profit for shareholders, 15% is not unreasonable.
Medicare’s administrative costs are lower because it doesn’t have to market, advertise, or pay taxes .And its customers don’t move in and out of the program. They enroll once–that’s it. Finally, the Centers for Medicare and Medicaid don’t do a very good job of fighting fraud; if it did administrative costs would be higher.
Medicare also doesn’t do a very good job of making sure that the care it is paying for is effective care. About 1/3 of Medicare dollars are wasted on unnecessary tests and treatments.
Private sector insurers are more likely to refuse to pay for treatments that won’t help certain patients. For instance Blue Cross in South Carolina has decided that it won’t pay for spinal fusions for degenerative discs. In order to make those decisions, someone has to be reading medical research — another expense.
Under health care reform, Medicare is likely to try to reduce waste, and this will add to its administrative costs.
A public option would be somewhat cheaper than insurance provided by the private sector–but not that much cheaper. The CommonWealth fund estimates that a family plan might cost $1200 to $1250 instead of $1350.
The question is: would the public option be as good as the best private sector insurance? (The private sector insurance that I now have through my employer offers better coverage than Medicare.)
Some private sector plans do add value. For instance, Kaiser has been enormously successful at reducing heart disease among customers in Northern California.
And Aetna pioneered a program which lets hospice patients continue to receive treatment while also getting hospice care.
Under Medicare, you can’t get hospice until you are ready to give up all potentially life-saving treatments. The Aetna program proved that patients who don’t have to “give up” before receiving hospice actually live longer and the total cost of their care is less. (Hospice is less costly than an ICU.)
Cigna is now signing up networks of doctors willing to form accountable care organizations. Putting these networks together is another administrative expense, but this, too, should bring down the cost of care.
Finally, one reason for the 85/15 rule when covering large groups (and 80/20 when covering larger groups) is that it makes raising premiums less attractive. If an insurer raises premiums for large group coverage by $100, he is able to keep only $15.
If he wants to increase profits for shareholders (so that the price of the company’s stock will rise) he needs to figure out how to provide better insurance for less — so that he draws a larger share of the market. This means improving the product—making it more attractive to customers– rather than boosting profits by simply hiking premiums.
Bottom line: I would very much like to see a public option.In fact, I think that it will happen before 2014 for reasons that I have explained in other posts and comments–there will be a major shake-out in the insurance industry,.
We don’t have a public option now because Pelosi, Reid, and Obama just couldn’t get the votes. It’s not that liberals decided to give up on the public. The votes just weren’t there.
Would you rather that they had given up on reform altogether if they couldn’t get the public option? Ask the parents of a sick child who is now able to get care because insurers can no longer refuse to cover kids with pre-existing conditions.
Finally, while I hope for a public option, everyone needs to understand that it isn’t the solution to making universal coverage affordable.
By contrast, the individual mandate is necessary if we want high quality care that we can afford.
Barry:
The MLR 80-85% rule is set; but, the calculation is not set. It has to average out to 80 or 85%. There is plenty of room to manipulate.
The trouble with controlling medical costs most certainly have to do with unneccessary tests and procedures, especially those that produce less than the expected results. The industry has little interest in passing on the efficiency. Lets also not forget, hospitals and many of their sponsored clinics make money when they sell services. You would go broke otherwise. A little test for you, go to your doctor and ask the costs of a battery of blood tests, imaging, and urinalysis. I will bet you can’t get them even if you are dying (done it with pneumonia). Knowledge creates levers for cost control. Your costs are hidden from the public.
Is medicare the issue or is it the healthcare, pharma, and procedures industry??? I suggest the later.
Maggie —
Some of what you say about private insurance versus Medicare is not totally true.
I agree that the overhead expenses of private insurers are not unreasonable and that their profits are not particularly high. Although some insurance executives do get huge ($100 million) incomes, those salaries are just a very small part of their total expenses, and most insurance employees are not overpaid.
However, while there are many HMO’s and a few insurers that do provide quality control superior to Medicare, overall private insurers tend to follow, not lead, Medicare in quality issues and attention to scientific information.
In thirty years of medical practice, I can say without equivocation that I have never seen a procedure or test that was covered by Medicare but not covered by private insurers but have often seen procedures not covered by Medicare covered by private insurers. Nationally Medicare is the leader, not a follower, in the issue of quality and scientific proof of efficacy. In fact, private insurers usually count on Medicare to do the heavy lifting in approval of coverage for many procedures, tests, and drugs.
In addition, right wing talking points to the contrary, private insurers do very little in addressing fraud. A newspaper in New Jersey addressed this question and found the instance of fraud to be at least as high in private insurance as in Medicare. What is different is that Medicare is specifically charged with detecting and prosecuting fraud and publicizing the results. Private insurers most often find the cost of pursuing fraud to be greater than the savings, and therefore frequently ignore it, while Medicare publicizes fraud and its detection. In fact, I have a hard time recalling a story about private health insurers detecting a significant fraud, as opposed to dozens of cases of Medicare and Medicaid detecting fraud.
In my experience, the main difference between private insurers and Medicare is that the claims departments of private insurers are designed to create delays in payments and to make filing claims more difficult. This frequently gives an illusion that they are engaged in quality assurance, but in reality they are just hoping that fatigue by providers will decrease their costs and that they will benefit from holding money in their own accounts longer. An example: in Minnesota the three largest private insurers launched a program in 2006 to require that non-emergency CT’s and MRI’s be pre-approved, in a well publicized effort to decrease overuse. In fact, in the 18 months I worked after that began I did not see a single case in which the insurers refused to cover a scan. All they did was try to make doctors think more about ordering because of the hassle of having to make a call to the insurer to get approval. In my practice scans continued to increase over the period.
Quality HMO’s like Kaiser Bay Area, Group Health of Puget Sound, and others are a totally different issue. They do add significant value through better attention to science and to process. Edward Kennedy frequently stated that the biggest mistake of his career was to oppose Richard Nixon’s proposal to create a national health plan based on enrolling everyone in HMO’s with the government paying for people not able to afford or get coverage. I agree with that.
Pat S.–
I completely agree that
most for-profit insurers have not been adding value to the system.
But sometimes they do. (For example, Aetna’s experiment with hospice payments.)
Certainly, it’s true that doctors greatly prefer dealing with Medicare because Medicare pays on time, and doesn’t try to micro-manage them, questioning every decision, forcing the doctor to spend hours on the phone–or, as you say, just give up on being reimbursed.
That said, in the 1990s, private insurers did actually bring down the price of health care. (I have run the charts in the past, showing private insurers’ success in reducing the total cost of care; during that period Medicare was far less successful.)
In those years, private insurers were the leaders, not the followers.
During that era of “managed care” private insurers sometimes refused to pay for needed, effective care. But they also refused to pay for unncessary care– the bone marrow transplants for breast cancer patients (until the media forced them to cover these harmful treatment) and a great many other unncessary treatments that put patients at risk. (For example, Aetna refused to pay for Vioxxy unless patients first tried, and showed that theh couldn’t tolerate other, less expensive, and less dangerous pain-killers. Aetna was sued for this decision.
Doctors and patients never want to hear “no”. This is why the media, along with doctors and patients, turned on private insurers on the 190s with such force. The evening news repeatedly featured a young mother of 3 who was dying –allegedly because a greedy insurers refused to pay for (futile) care.
Michael Moore’s film, “Sicko” (which I liked in many ways) repeats the myth, featuring a very sympathic man who is dying of an incurable cancer. His wife goes to his employer and insurer, crying out for help. But the truth is that there is no hope for this man. No cure. No treatment that will lengthen his life in any signficant way. The insurer was right.
(I like Michael Moore’s films, but other docoumentarians will tell you that he doesn’t always do a very good job of fact-checking. This is a shame, because it undermines the credibility of his work and gives his enemies ammunition.)
Following the backlash against managed care at the end of the 1990s, private sector insurers gave up and said “Fine, we’ll pay for anything the FDA approves, just the way Medicare does.”
Insurers then passed those costs along in the form of higher premiums.
And now, we blame them that premmiums sky-rocketed during the first decade of this century.
Pat, I know you agree that Medicare is extraorindarily wasteful: as the DArtmouth reserach reveals, roughly 1/3 of Meidcare dollars are wasted on unnecessary tests and treatments.
(You are right that private insurers have usually followed Medicare in this waste, but not in that one period in the 1990s …)
Why is Medicare so wasteful?
Becuase Congress is its Board of Directors. And lobbyists representing doctors, hospitals, drug-makers , device-makers and seniors have made sure that Congress does not let Medicare refuse to pay for unncessarsy tests & procedures.
When the AHRQ suggestedthat we’re paying for too much unncessary spine surgery, the lobby representing back surgeons nearly put the AHRQ out of business. Its funding was slashed.
On fraud: Congress has never approved letting Medicare go after fraud in a big way. (Too many lobbyists represent too many people who benefit from fraud in the form of unrpoven procedures.)
Private sector insurers can spend as much on fraud as they choose. Many spend quite a bit, but they tend to attack fraud cases by case. (By contrast, Medicare and the FBI launch a huge case once every few years.)
Private insurers do not tend to publicize success in ferreting out fraud. To do so woudld mean telling
customers and, most importantly shareholders,that they have
been over-paying.
This would lead investors to accuse the insurance company of “mis-management”
Little wonder that insuers don’t advertise successful fraud investigations.
Going forward, under health reform, Medicare is going to be trying to “manage care.” This may mean that Medicare will be asking doctors more questions–asking them to justify a particular treatment for a particular patient.
This is the only way that we will manage to lower costs and raise quality.
We’ll see whether the private insuers that survive reform do actually
work harder to add value to the system.
Note– Naomi has been tied up on another project,which is why I’ve answered a few comment on her post.
But she’ll be free very soon, and replying to your comments.
Maggie —
I agree with all that you said.
The 90’s did show that private insurers and HMO’s could control costs until they lost the stomach for it.
Medicare does pay for a lot of wasted care, but private insurers pay for even more. In fact, private insurers often boast that they cover care that Medicare does not.
For now, and for its history EXCEPT for the 90’s, Medicare still is and has been the leader in cost control and in refusing to pay for useless procedures, drugs, and tests.
Private insurers, with only rare exceptions like the Aetna program you cite, are unwilling to engage in the work of cost control and effectiveness analysis, preferring to let Medicare and a few HMO’s do the work of sorting out what is worthwhile and what is not.
Granted Medicare has done a poor job of this as well, due to all the political pressures you cite.
But when people talk about private “market” approaches to control of health care costs, they almost always are talking about programs involving high deductibles, high co-pays, low annual and lifetime limits, and other devices to encourage people not to choose to seek health care. They are not interested in eliminating waste, but rather making health care out of reach for middle class and low income people.
Ironically, study after study has shown that that approach, while it does discourage people from getting health care, does not save money in the long run, since it results in too many people finally presenting with out of control illnesses that cost much more to manage.
We need people to understand the difference between rational care and rationing care — including by price. The greatest failure of politicians on both sides of the aisle has been their failure to do the work of selling this to their constituents. Only when the politician grow up and stop posturing can we get on with the difficult task of bringing US health care under rational control before it either bankrupts the country or before most people are excluded from care due to insurance that doesn’t really cover necessary health costs.
I have had continuous individual health insurance since 1999, at which time I was lucky to not have a pre-existing illness. My premiums have steadily climbed, at first every several years, and lately every year. A few months ago, for the first time in my life, I was notified that my premium was decreased! Is it possible that this is a benefit of health care reform already? Or haven’t any limits on insurance charges taken effect yet? Though I supported the reforms as an acceptable “half a loaf,” I didn’t believe it would result in any net cost control. Have others seen decreases? Or is this likely just coincidence? Since passage, I have not been a faithful reader, so my apologies if you have answered this one, or if this is an inappropriate question for this blog.
Richard K MD–
There are no limits on what insurers can charge–though state regulators are beginning to demand that they justify increases.But as long as the cost of a hospital stay, and total spending on visits to physicians continue to rise, insurance premiums are likely to rise. (In California, the cost of a hospital stay has been climbing 10% a year.)
The reform act hopes to reduce unnecessary hospitalizations, treatments and tests–and this should halt the rise in insurance premiums– but that will take time.
That said, some customers have seen premiums level off, or even fall this year.
For example:
–Medicare Advantage customers are enjoying slightly lower premiums (down 1%)–thanks to the fact that the Secretary of HHS used her new clout under the Affodable Care ACt to negotiate with Advantage insurers. Seniors on Advantage plans will also see lower co-pays (no co-pays for primary care).
–Employees of smaller businesses. Small Business with middle-income and low-income workers became eligible for tax credits last year, and this year we saw a real jump in small businesses signing up for insurance.
The tax credits can cover up to 35% of the cost of premiums–which means that small employers could afford to cover a larger share of premiums, lowering costs for employees (and making insurance cheap enough that employees can afford it.) According to the Congressional Budget Office,the tax credits could supply as much as $40 billion in support to small businesses over 10 years and reduce premiums 8 to 11 percent by 2016.
Presumably premiums for some employees of small businesses have already flattened–or already begun to fall slightly. (On the other hand, many insuers are raising premiums for small groups to keep up with the rise in the amount that they are paying out to doctors and hospitals as physicians “do more” and hospitals raise rates. We’ll have to get a handle on the underlying cost of care before we can expect a widespread levelling off in preimums.)
—People in high-risk pools: Missouri just announced that premmiums for its high-risk pool will be 25% lower,starting in Feb. And HHS is lowering premiums in many high-risk pools throughout the nation.
Finally, going forward, insurers are likely to be less inclinded to hike premiums becuase of the 85/15 rule. When covering large groups, they must spend 85% of premiums on reimbursements–or give rebates to customers. (When covering small groups, the rule is 80 20.)
This means that if an insurer rates rates for a large group by $100, he gets to keep only $15.
And, if he raises rates sharply,he will have to face state regulators. In some states, they are getting much tougher.
If an insurer wants to increase profits for shareholders (so that the stock’s price goes up) raising rates and keeping 15 cents on the dollar–much of which will be eaten up by adinistrative costs– won’t be the best way to do it.
Insurers who hope to survive and keep shareholders happy will have to grow market share–which means coming up with a high quality, affordable product that attracts a good share of the new customers. . .
Pat–
You are right that “when
But when people talk about private “market” approaches to control of health care costs, they almost always are talking about programs involving high deductibles, high co-pays, low annual and lifetime limits, and other devices to encourage people not to choose to seek health care.”
BUT UNDER THE AFFORDABLE CARE ACT this shifting of costs to the patient is NO LONGER ALLOWED.
–No annual limits on what an insurer pays out.
–No lifetime limits.
–No copays for preventive
care.
–Plans will have to cover a pretty rich menu of essential benefits– so insurers won’t be able to sell stripped-down “bare bones plans.
–High-deductiible plans only
for very young workers.
(I’m fuzzy on the status of high deductibles for others, but I’m pretty sure that there is a limit on deductibles. And subsidies will make it much easier for low-income families to afford a plan with a low deductible.
Today, without subsidies, these high-deducctible plans attract a large number of low-income workers who then cannot afford to use the plan.
Under the Affordable Care ACt insurers will actually have to compete on quality. (Paul Ellwood’s original idea when he conceived of “managed care.”) The Exchanges will demand a high degree of transparency that will make it easier to compare plans, and the fact that they all have to cover the same essential services will make comparisons much clearer.
You are right that, aside from some HMOs and non-profits, most private sector insurers don’t want to do the work of trying to control costs by lifting the quality of care–creating a better network of docs and hospitals etc.
This is why most industry observers (including insiders) expect a major shake-out with many for-profit insurers dropping out of the health insurance game in the next year or two.
The ones that are left are going to have to try reforms– for example, Cigna is already signing up networks of hospitals and doctors willing to for ACOs. We’ll see how good they are.
Finally, we many fewer insuers in the game, I think that some states will have a hard time finding the required “two insurers” or more to compete in the state.
This is one reason why I think we’ll see the public option come back.
Whether or not the individual mandate is constitutional is likely to be ultimately decided by the U.S. Supreme Court. While there is no severability clause in the PPACA, at a conference I recently attended, Ron Pollack, head of Families USA and a former law school dean (Antioch), suggested that if the court were to rule that the mandate is unconstitutional, it may also strike down other provisions of the PPACA that likely would not have been passed but for the inclusion of the individual mandate. This means most of the insurance reforms including those related to pre-existing conditions. He went on to also suggest that should that happen, there are other approaches available including allowing people with pre-existing conditions to sign up for insurance at standard rates when they first become eligible for coverage. However, if they don’t and want it later, they must pay a substantial surcharge for each year they delay. Medicare Part B works this way though its surcharge is a comparatively modest 1% per month of delay which then applies forever.
Accountable Care Organizations have the potential to reduce costs mainly through better care coordination. If they are paid through some form of capitation, as opposed to fee for service, coupled with the opportunity to share savings, it could help to reduce unnecessary care and overtreatment. On the negative side, if hospitals start to buy up most of the local physician practices, labs, and rehab centers, etc., it could lead to even greater market concentration and still higher prices. If the capitated payment is high enough as a result of market power, we could wind up with higher costs than we have now even if utilization declines. I think it’s up to regulators to prevent that from happening.
I want to address the issue of to what extent insurers add value to the healthcare system.
When it comes to taking care of patients, we expect doctors, hospitals and other providers to perform that role. The insurers’ primary role is to assume actuarial risk. They also strive to develop payment methods and other incentives to induce behavior that results in cost-effective care to the extent possible. Finally, they strive to offer an array of insurance products that allow customers to select a product that best meets their needs.
Insurers must project a year in advance what medical costs and utilization are likely to be and use those estimates to set premiums. If costs turn out to be higher than expected, the insurer and its shareholders, if any, are on the hook for the entire shortfall. If costs are lower than expected, the new MLR rules will cap their upside which, at the margin, makes the health insurance business more risky than it was before and it wasn’t overly profitable to start with.
There is a considerable history of failure among physician and hospital groups who thought they could provide the insurance function, along with care, and capture the profit from the insurance as well as from healthcare. It turns out that estimating costs is a far from simple proposition which, I think, accounts for why there is such a reluctance to embrace capitation as a payment model to replace fee for service.
Kaiser Permanente is the largest and most visible example of what a large ACO might look like. It also handles the insurance function for its members. The model has worked pretty well in some areas like Northern CA but not so well elsewhere. Its costs and insurance premiums are not significantly lower than its competitors though one would think they should be given its advanced electronics records system and the fact that its doctors are salaried.
Medicare, for its part, for most of its history was a big dumb payer. It makes no effort to manage care. It has no budget. Whatever the program costs, it costs, and taxpayers are on the hook to cover it. Fraud is a significant problem. It didn’t even offer a prescription drug program for the first 41 years of its history. There is no out of pocket maximum for Part B services and there is a deductible that must be paid for each hospital admission. In short, it’s hardly a model that we should seek to extend to the entire population.
Private insurers, for their part, widely use tiered co-pays for prescription drugs. They are just now starting to experiment more broadly with tiered networks for doctor and hospital services. UnitedHealth Group has a pilot project running with oncologists that caps how much they can make for a course of cancer treatment which removes the incentive to choose the drugs that produce the most profit for the practice. United will know within a year whether the experiment is successful or not in reducing costs.
Insurers have other ideas as well but it’s hard to get providers to work with them unless they have a very large market share in the region. Since Medicare accounts for 30%-40% of revenue for most hospitals with Medicaid providing another 10% or so, there is a lot of resistance among providers to payment approaches that are different from Medicare’s. The biggest problem private insurers have from a cost standpoint is cost shifting by hospitals with significant local or regional market power.
Finally, regarding the possibility of a public option, there is a strong possibility of adverse selection. Adverse selection can include not just a sicker than average group but an older than average group. At the population level, the 55-64 age group consumes 5-7 times as much healthcare as those in their 20’s. It’s quite possible that even if the public option paid Medicare rates, it still might have to charge above market premiums to cover its cost. People don’t fully appreciate how differences in age among insured populations can have a large impact on healthcare utilization per person and the premiums that need to be charged to cover those costs.
Barry and Others:
Healthcare Reform is Constitutional the same way as other things imposed upon us by states and the Federal Government. A dear friend has this to say about it.
“Those opposing health care reform are increasingly relying on an argument that has no legal merit: that the health care reform legislation would be unconstitutional. There is, of course, much to debate about how to best reform America’s health care system. But there is no doubt that bills passed by House and Senate committees are constitutional.
Some who object to the health care proposals claim that they are beyond the scope of congressional powers. Specifically, they argue that Congress lacks the authority to compel people to purchase health insurance or pay a tax or a fine.
Congress clearly could do this under its power pursuant to Article I, Section 8 of the Constitution to regulate commerce among the states. The Supreme Court has held that this includes authority to regulate activities that have a substantial effect on interstate commerce. In the area of economic activities, “substantial effect” can be found based on the cumulative impact of the activity across the country. For example, a few years ago, the Supreme Court held that Congress could use its commerce clause authority to prohibit individuals from cultivating and possessing small amounts of marijuana for personal medicinal use because marijuana is bought and sold in interstate commerce.
The relationship between health care coverage and the national economy is even stronger and more readily apparent. In 2007, health care expenditures amounted to $2.2 trillion, or $7,421 per person, and accounted for 16.2 percent of the gross domestic product.
Ken Klukowski, writing in POLITICO, argued that “people who declined to purchase government-mandated insurance would not be engaging in commercial activity, so there’s no interstate commerce.” Klukowski’s argument is flawed because the Supreme Court never has said that the commerce power is limited to regulating those who are engaged in commercial activity.
Quite the contrary: The court has said that Congress can use its commerce power to forbid hotels and restaurants from discriminating based on race, even though their conduct was refusing to engage in commercial activity. Likewise, the court has said that Congress can regulate the growing of marijuana for personal medicinal use, even if the person being punished never engaged in any commercial activity.
Under an unbroken line of precedents stretching back 70 years, Congress has the power to regulate activities that, taken cumulatively, have a substantial effect on interstate commerce. People not purchasing health insurance unquestionably has this effect.
There is a substantial likelihood that everyone will need medical care at some point. A person with a communicable disease will be treated whether or not he or she is insured. A person in an automobile accident will be rushed to the hospital for treatment, whether or not he or she is insured. Congress would simply be requiring everyone to be insured to cover their potential costs to the system.
Congress also could justify this as an exercise of its taxing and spending power. Congress can require the purchase of health insurance and then tax those who do not do so in order to pay their costs to the system. This is similar to Social Security taxes, which everyone pays to cover the costs of the Social Security system. Since the 1930s, the Supreme Court has accorded Congress broad powers to tax and spend for the general welfare and has left it to Congress to determine this.
Erwin Chemerinsky is one of the greatest constitutional attorneys in the narion and has been called to testify in Congress on occassion. The rest of his verbage on the issue can be found here: http://www.politico.com/news/stories/1009/28620.html